Mr. CLARK. You have never brought that up before. Nobody has brought that up before.

Senator CONRAD. Oh, yes, I have. In fact, in the meeting in my office between you and I, we talked about that specific item, and that was a month ago.

Senator Melcher, if you have questions.

Senator MELCHER. Mr. Clark, one of the criteria I attempted to instill in my office last year was that when staff was working with someone, farming or ranching, in our State, that was losing their ability to obtain credit, whether it was with the commercial lender, the insurance company or PCA, or Federal land bank, or Farmers Home Administration, was that had the highest priority, because we are dealing with business people in agriculture. And I mean that. The farmers and ranchers who have survived these serious economic times, and who have thus far managed to float along, not very safely or soundly, are at least still in the business. So they had to have fairly good business practices.

We have constantly run into a bottleneck on Farmers Home Administration loans. I have not checked in the last 60 days, but there seems to be a policy of just dropping those that had serious delinquencies and not trying to do anything about it. And second, the caseload was such that they were way behind processing paper. I would like to ask you about the first one. Surely it is not your policy to drop farmers and ranchers who happen to have a rather high delinquency at this time?

Mr. CLARK. It is not.

Senator MELCHER. And so you are attempting to restructure their loans?

Mr. CLARK. We are.

Senator MELCHER. In the case of where you cooperate with a bank, is that part of it in some cases?

Mr. CLARK. Yes, it is.

Senator MELCHER. And what is the interest rate for them?

Mr. CLARK. That interest rate for a bank and their borrower is negotiated between the two of them. However, we stand ready with an interest buydown feature that could lower that rate effectively 4 percent to the borrower.

Senator MELCHER. And are you using that interest buydown?
Mr. CLARK. Yes, we are.

Senator MELCHER. In how many cases? You testified there are $7.6 billion in delinquency farm loans right now.

Mr. CLARK. Yes, our interest buydown feature is also in my testimony, Senator. We have made loans for $275 million this year. Subsidies, $16 million. About 18 percent of all of our guaranteed loans this year are interest buydown loans.

Senator MELCHER. About 18 percent?

Mr. CLARK. Yes.

Senator MELCHER. Are you using it to 4 percent or somewhere in between, or less than 4 percent buydown?

Mr. CLARK. We will match the banker's reduction. So if he reduces that rate 1 percent, we will match it with 1 percent. We will not match over 2 percent.

Senator MELCHER. How many are doing that?

Mr. CLARK. Again, over 2,300 loans were booked for this year that way.

Senator MELCHER. Well, I guess I am at a loss. What does 2,300 loans represent in this total $7.6 billion delinquency?

Mr. CLARK. That has nothing to do with delinquencies. Those are brandnew loans granted this year.

Senator MELCHER: They are not, then, in the restructuring.

Mr. CLARK. They could be, and I cannot tell you what portion of delinquencies. That really should not affect our delinquencies, Senator. That combination with a banker is new credit, or restructured credit out in the banker's portfolio, not ours.

Senator MELCHER. So it really does not involve delinquencies in many instances?

Mr. CLARK. Well, it could in subordination. We could subordinate our loans to a bank that is willing to go on, and we have done that in a great many cases this year.

Senator MELCHER. Well, in the subordination process which I am familiar with, is interest buydown used in that instance?

Mr. CLARK. Yes, it could be on the banker's point.

Senator CONRAD. Would the Senator yield for a question just on this point?

Senator MELCHER. I will in a moment. Do I understand you that it could be or is? The question is what is, not what could be.

Mr. CLARK. I cannot give you exact numbers, Senator. We will try to churn some of those up, if you like.

Senator MELCHER. I would like to have them. Yes, I yield, Mr. Chairman.

[The following information was subsequently received by the committee:]

Mr. CLARK. Excuse me, Senator Melcher, before I provide you with the exact number of interest buydowns on guaranteed loans, I believe I may have misunderstood your previous question regarding restruction of loans and my responds may not have been appropriate. FmHA will subordinate_its_lien position to permit a lender to restruction or make a new loan without an FmHA guarantee. However, it has been FmHA's policy not to subordinate its lien position to a guaranteed lender when the lender believes additional security is needed before making the guaranteed loan. Keeping this in mind, FmHA would not be able to grant a subordination to a lender seeking a guaranteed loan. The only exception to this would be if FmHA had a security interest in the crop and a lender wanted to make a guaranteed annual operating loan, then FmHẢ would subordinate its interest in the crop to permit the lender to secure the guaranteed annual operating loan with a first lien position on crops. Now, for the record, as of June 3, 1987, FmHA has assisted 1,801 borrowers with interest buydown. This represents 2,377 loans totaling $275,199,167.90. The dollar amount of interest buydown on the loans total $16,143,805.67.

Senator CONRAD. You indicated there has been $16 million of subsidy in interest buydowns?

Mr. CLARK. That is correct.

Senator CONRAD. And what is the total program amount? What are the resources you had available to you in that?

Mr. CLARK. $290 million for this fiscal year.

Senator CONRAD. $290 million, and you have used $16 million?
Mr. CLARK. That is correct.

Senator CONRAD. And you make the assertion here that you are doing everything possible to help?

Mr. CLARK. Those numbers came from the Congress, Senator. We did not churn up those numbers.

Senator CONRAD. Well, Mr. Clark, you have just made the assertion here that you have done everything you can in your Agency to help. And you have $290 million available to you in that program and you have used $16 million of it?

Mr. CLARK. You cannot lay that on to me. We need to go out and market the banks on it. The bankers are the ones that have not jumped onboard on that program as we had hoped they would.

Senator CONRAD. So the reality is that is a very small piece of the pie?

Mr. CLARK. It is.

Senator CONRAD. Very small piece of the pie. And you had $290 million available to you to use in that program, and you used $16 million. And you assert to us that you are doing everything you can to help.

Mr. CLARK. Yes, we are.

Senator CONRAD. That is hard to believe.

Mr. CLARK. Well, you ought to talk to America's bankers. Do not chew on me about that one.

Senator CONRAD. Well, that is the program that you wanted, Mr. Clark. You told us that is the program that would be most beneficial. You wanted guaranteed loans, did you not?

Mr. CLARK. Yes, we do. But the interest buydown came out of, I think, your section, not ours.

Senator DASCHLE. But the interest buydown is something that would appeal to these bankers. What the bankers tell us is that you have made it so complicated that they cannot use it. You mean that you want to tell me that is the only reason they are not using that program is because you have afforded them the opportunity, and they choose for whatever reason not to use it? Is that what you are saying?

It seems to me if you have a tool, Mr. Clark, as effective as the guaranteed loan could be with the buydown feature which makes it more, a much better tool, a more effective tool than if you did not have the buydown, that the bankers would use it. The bankers are not using it because it is not a very good program today. It is the paper work, the kind of length and delays, the approval process. There are so many obstacles in the road to approval to a guaranteed loan today that they tell us across the board that they cannot use it. And it is no surprise to me that only $16 million of the $290 million is being used.

The fact is the Farmers Home does not want them to use it.

Mr. CLARK. Senator, that is not true. You cannot push a string. Senator DASCHLE. Prove it to us. Prove it to us. Can you? Can you prove it to us?

Mr. CLARK. In what way?

Senator DASCHLE. That what I have just said is not true.

Mr. CLARK. Paper work burden and-

Senator DASCHLE. That is right. It is ironic that at the same time you have this paper work reduction force out there somewhere, Farmers Home keeps loading more and more on the bankers telling them go ahead, use this program, we dare you.

That completes my prepared statement, Mr. Chairman. I would be happy to answer any questions you might have.

Senator CONRAD. Mr. Clark, there seems to be a difference of perception, a rather radical difference. You see things as being quite good, if I could summarize your testimony. When I go out into the field, and along with my colleagues, we went through five States this spring, and more recently I have just conducted some 40 meetings in 30 towns and cities of my State.

The overwhelming response that we receive is that there are problems with FmHA. How would you account for the difference between what the people who are FmHA borrowers tell us and what you tell us as FmHA Administrator? How would you account for the difference?

Mr. CLARK. Well, Mr. Chairman, I think your presence in those States certainly brings out those borrowers of Farmers Home and perhaps other lending institutions who are so hopelessly overburdened with debt, and are looking to you as one last gasp, if you will, for survival.

You are not talking to the ones who have been serviced. I think you ought to see if you can get to those who are surviving and are making it because of our servicing actions.

Senator CONRAD. Would you describe this as a time in agriculture when people are doing well, by and large?

Mr. CLARK. I do not think I used that word. No. There is still a lot of stress and strife out there, and that certainly makes our burden greater.

Senator CONRAD. Let me just say this to you. As one Senator who has a constituency to serve, when half of my case load involves FmHA, and fully half of my case work in the State of North Dakota involves one Agency of the Federal Government, when half of my mail relating to agriculture involves FmHA, it would seem to me that is a signal that there is a problem. Is your sense that there simply is no problem?

Mr. CLARK. I have not used that term, Senator. Certainly there is a problem out there. But we cannot salvage and save every American farmer in your State or any other State. We have to realize there has to be some failures out there.

Senator CONRAD. I do not think anybody is saying we have to save every farmer. Number one, we do not have the resources to do that. But on the other hand, we ought to make the full effort that can be made to save those that have a chance to survive if they are given some help. I am sure we would agree on that.

Let me turn to the point of your statement that surprised me, and I frankly have trouble understanding. Perhaps you can help me understand. You indicate that you have $7.6 billion of delinquent loans. Is that correct?

Mr. CLARK. That is correct.

Senator CONRAD. That is your current delinquency in the farm portfolio. You indicate that if S. 1179 were passed that there would be a $7.6 billion giveaway of public funds.

Now maybe you can explain to me why that is the case when we are saying write-down the loans only in those cases where you would get more than by going to liquidation or foreclosure? Why would we lose the whole $7.6 billion?

Mr. CLARK. Most of that delinquency total, Mr. Chairman, is greatly overdue. I think 70 some percent of that delinquency is 4 years or more delinquent. And most of that delinquency is composed of emergency disaster loans and economic emergency loans that were booked some years ago. If you start writing down those disaster loans, it is a giveaway program.

Senator CONRAD. Well, then, in effect, have you not already lost that money, and you just have not owned up to it?

Mr. CLARK. That is correct. However, you are really intimating a commitment to go on with those farmers by writing down that debt which says we also have a commitment, then, to continue with them with another year's operating funds. And I think that opens up another can of worms of continuing that debt forward.

Senator CONRAD. Well, help me understand further because this I find most interesting. The hard reality is, I think you would agree, FmHA has already lost billions of dollars. By that I mean we look at this $7.6 billion, and, if I hear you correctly, much of this is 4 years in arrears. We have lost that money. We have just not admitted to ourselves that we have lost it.

Mr. CLARK. That is correct.

Senator CONRAD. So S. 1179 which would write-down to current market value in those cases where you would get less if you went to foreclosure or liquidation is not going to lose $7.6 billion.

Mr. CLARK. Again, I think you are intimating a commitment to go on with those farmers, and I am saying we cannot go on with those farmers that are 4 years or more delinquent.

Senator CONRAD. No, I do not think there is any intimation of anything of the sort. I think there is a recognition that we have already lost the lion's share of this $7.6 billion and so when you assert, as you have in your testimony, that if S. 1179 passes we lose $7.6 billion, that is really not a fair statement.

The fact is we have already lost a good chunk of the $7.6 billion. S. 1179 does not lose you $7.6 billion which one would infer from your testimony.

Mr. CLARK. Well, I hope it is not $7.6 billion today. I think there is at least $2 billion in that portfolio that could be written off with the snap of a finger if we get the paper work done today. I hope there is some hope of salvation of the remainder of that debt. And I am saying that S. 1179 would wipe out that hope of salvation for the taxpayers.

Senator CONRAD. Well, again, let us go back so that we fully understand what both of us are saying because, number one, you have agreed that we have already lost significant amount of what is in this portfolio because it is so far in arrears that there is very little hope of full recovery, or even substantial recovery. Is that a fair statement?

Mr. CLARK. True.

Senator CONRAD. So, number one, S. 1179 does not lose you $7.6 billion because you have already lost a good chunk of that.

Mr. CLARK. Well, let us make it $5.6 billion. Is that any better? Senator CONRAD. No. No, I do not think that is probably a fair estimate either. And the reason I would say that is because what this bill does is simply say you write down to market value. Now, market value, if we lost half of market value in the last 6 years,